Circle CEO Jeremy Allaire has attributed the declining market capitalization of USD Coin (USDC) to increased regulatory scrutiny in the United States.
Amid the recent collapse of the FTX exchange, a banking crisis, and USDC’s temporary depegging, Allaire expressed concerns about the US banking system and regulatory environment during an interview with Bloomberg TV.
Investor concerns over US banking and regulatory environment
Allaire noted that global concern about the US banking system and its regulatory environment has led investors to “de-risk out of the US,” contributing to the decrease in the market value of USDC.
The stablecoin, which is meant to maintain a steady value of $1, temporarily lost its peg during the banking crisis earlier this year but has since stabilized.
However, its overall market capitalization has continued to decline, falling from over $56 billion in 2022 to about $30.7 billion, according to CoinGecko data.
Stablecoins serve as a crucial component of the crypto sector, where investors often park funds for use in trading. These digital assets are typically backed by reserves like cash and bonds, and regulators have increased scrutiny of stablecoins due to concerns about the potential risks they pose.
Circle and USDC’s struggles amid regulatory crackdown
The market capitalization of USDC has dropped by about $13 billion since the US banking crisis in March. The token temporarily de-pegged after it was revealed that $3.3 billion of the reserves used to back the stablecoin were held at the collapsed Silicon Valley Bank.
Following assurances that depositors would get their money back and Circle’s commitment to covering any reserve shortfalls, USDC regained its $1 value in crypto markets.
The US crypto industry has been grappling with a stringent regulatory crackdown in the wake of FTX exchange’s collapse and last year’s market crash.
These events resulted in significant losses for investors and increased concerns about the risks associated with digital assets.
The US Securities and Exchange Commission (SEC) maintains that many tokens are unregistered securities and that numerous digital-asset businesses have not complied with the agency’s requirements.
Crypto companies have urged US politicians to establish legislation clarifying the status of crypto assets. However, partisan divides have hindered the passage of stablecoin regulations in the near term. Allaire called the current situation a “critical moment” and urged Congress to step up.
Allaire also highlighted concerns about the competitiveness of the US dollar amidst the rise of blockchain technology and internet-based currencies.
He pointed out that other regions, such as the European Union, Hong Kong, Singapore, and the Middle East, are making progress on crypto regulations, while the US lags behind.
